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Soviet trade tests innovation and endurance.

The reporter might have been from any major American daily newspaper. He wore a neutral suit and tie and carried a standard-issue pen and pad. But his question, even if it had not required translation, would have broadly hinted that this reporter was going to file his story with a Soviet newspaper. Furthermore, his question conveyed in a subtle but significant way the kind of issues that are challenging many Alaskans eager to do business with the Soviet Union.

The reporter wanted to know: Do Alaskans find the military presence in the state difficult to cope with? Is the military overbearing, careless with toxic waste? Does it control civic affairs and interfere with civil liberties?

The question, of course, reflects a Soviet state of affairs very different from the subordinate domestic role played by the military in the United States. More importantly, however, the fact that the reporter was asking such a question at all of his Alaskan colleagues, as well as negatively editorializing about the Soviet military, suggests just how far the Soviet-American political and economic thaw has progressed.

In fact, the reporter's presence in Alaska at the recent Northern Regions Conference, along with about 60 high-ranking Soviet officials, signals a new maturity in the state's blossoming cultural and commercial relationship with the Russians, in particular peoples of the Soviet Far East.

That relationship has its genesis deep in Alaska's past. Even in business dealings, Alaskans are finding that Russian counterparts share a sometimes glamorous vision of special ties dating from a Russian colony on American shores. Beyond the natural affinity of neighbors with a mutual history sharing an isolated part of the globe, the prospect of restoring and expanding ancient aboriginal family connections on both sides of the Bering Straits is fueling the desire of many Alaskans to pursue economic adventure in the Soviet Far East.

Northern people have an empathy for each other that goes beyond that of people of other latitudes,' says Perry Eaton, president of the Community Enterprise Development Corp. in Anchorage. We seem to share basic survival instincts that require getting along with our fellow man. Our basic environment demands it.'

JoAnn Zentner, executive director of the Foundation for Social Innovation Alaska in Juneau, an affiliate office of a Moscow-based organization facilitating exchange between Alaska and the Soviet Union, notes the Soviets are keenly aware of Alaska's strategic role in emerging SovietAmerican relationships. She characterizes that role as "dynamic and unique."

They're very enthusiastic about Alaska. They view us as the gateway to the rest of America. It's really not cliche," Zentner adds.

But as the euphoria of now countless cultural and scientific exchanges begins to run its course, a new generation of economic prospectors is beginning to explore the wilderness that characterizes doing business in a country almost completely lacking in business knowledge and infrastructure. These new pioneers are more focused, more calculating and, arguably, more realistic. They have expanded their economic horizon geographically, beyond the sparsely populated Magadan Region, setting covetous sights on Khabarovsk and Vladivostok, Russia's "Pearl of the Pacific."

The glimmer in the gold pan being discovered by these prospectors suggests opportunities for Alaskans to prosper in trading with the Soviets. But the partnerships now being formed don't resemble the ventures commonly created to sell Alaskan commodities to resource-hungry nations around the globe: The Soviets are oil-independent, and they have fish, timber and minerals. Done Deals. What the Soviets lack is the technology and the know-how to get their resources to market. The Russian trading niche being carved out by a growing list of Alaskan entrepreneurs involves brokering information and ingenuity to help the Soviets join the world economic family of the latter 20th century. Some of the Alaskan offerings are utterly rudimentary, but in many cases, a little goes a long way, as a sampling of Alaskan-Soviet business adventures attests:

Husky Battery of Fairbanks last year reported Soviet interest in its locally engineered and manufactured cold-weather battery.

Doug Drum, owner of Indian Valley Meats, has invested more than a half million dollars in his highly publicized joint venture with the Soviets. Drum has provided time and equipment to help create a market-oriented sausage plant in a Magadan village. The deal calls for Drum to eventually recoup his investment by brokering Russian reindeer horns, skins and related products.

It's not trade in the typical sense, but Alaskans stand to profit in various ways from efforts to secure greater, more flexible air access to the Soviet Far East. The Department of Transportation has awarded the first two routes into the Soviet Union that were made possible by agreements signed by the two countries earlier this year. One winner was Alaska Airlines, which will begin flying a regular schedule from Anchorage to Magadan and Khabarovsk on June 17.

A number of travel agents and other entrepreneurs have been calculating the profit to be made by brokering Soviet tours. Bering Air, a commuter airline based in Nome, is currently marketing "adventure tours" in the Chukotka area, complete with overnight stays in yarangas - reindeer-hide tents. The company al so sells tours of Provideniya, Nome's neighbor across the straits.

Soviet and Alaskan officials have agreed to co-sponsor the Second Pacific Rim Fisheries Conference next spring. One thrust of the gathering will be sharing American fisheries technology with the Soviets. The conference title, 'International Business Development and Cooperation of Fisheries through Market Economy,' underscores the Soviet determination to make up their deficit of economic wherewithal.

Recent trade delegations to the Soviet Far East have discovered a growing desire on the part of residents there to develop their own oil reserves and reduce dependence on oil from western Siberia. But, according to Dave Heatwole, public affairs vice president for Arco Alaska Inc., the Soviets are hungry for the American technology needed to do the job with adequate environmental safeguards.

Because Soviet currency is not currently tradable, ways are being explored to allow American companies to take payment for equipment and services in the form of oil. Similar approaches may be used in cutting deals for sharing minerals and timber expertise.

Community Enterprise Development Corp. (CEDC), which owns Alaska Commercial Co., has a joint venture with the Magadan government to sell Soviet-made consumer goods and to train people from Magadan Region in the principles of the free marketplace.

According to CEDC's Eaton, The training component has been our big success.' This kind of mutual education, which also takes place less formally during the trade and cultural exchanges, is the kind of nitty-gritty development work that Alaskan businesses need to invest in to make their Soviet partnerships work.

Although CEDC has established a strong wholesale network consisting of more than 70 businesses to carry Soviet goods, Eaton reported to the Northern Regions Conference the venture's balance sheet shows $60,000 in sales against 90,000 in expenses. The big challenge is getting a reliable supply of goods out of the Soviets' dysfunctional manufacturing and transportation systems. Caution Advised. Steve Smirnoff is a public affairs official for Alascom, as well as a businessman with his own ventures. Alascom has led the way in helping improve telecommunications in- the relatively primitive Soviet Far East. Smirnoff notes the Soviets have trouble grasping concepts that are second nature to Americans, things like volume discounting and overhead. On the other hand, many Americans lack the patience to make Soviet ventures work.

"People want just to turn around in a year and make money. (And the Soviets) have virtually no infrastructure. They don't understand real costs and amortization," says Smirnoff.

He relates a story of an American company that tried to make a deal with a Soviet furniture maker. But when questions arose about icing in the bay from which the goods were to be delivered, the Soviet's response was Not my problem.' The lack of cooperation killed the potential transaction.

Besides inefficiency and ignorance of capitalist ways, doing business with the Soviets is complicated by the very process of economic renovation, notes Smirnoff. About two years ago he authored a guide for businesses eyeing opportunities across the Bering Straits. The manual has been rendered obsolete and won't be reissued, because things are changing too fast, relates Smirnoff. He cites recent decisions by Mikhail Gorbachev to reassert control over the tottering economy.

Things are going to once again be centralized and controlled by Moscow. You can't assume anything with the Soviets. I consider myself pretty well connected and I have trouble getting around. Be careful what you sign," he adds.

Smirnoff also is concerned that many Alaskans overestimate the profit potential of some of the more sparsely populated Soviet regions such as Magadan. For us to zero in on it economically doesn't make sense. We're still not prepared to think big," he says.

Smirnoff recommends Alaskans be prepared to act as brokers, not as exporters. He adds that such a direction requires a substantial commitment from the state of Alaska and the port of Anchorage to improve the state's own infrastructure.

Future Trails. The new generation of Alaskan entrepreneurial pioneers blazing Soviet trails are thinking bigger than ever. Paul Fuhs, mayor of Unalaska and co-chair of Ports Alaska, a statewide port advocacy organization, has been receiving excited marine radio reports from Soviet sea captains crossing the Arctic seas from Dutch Harbor to Europe. He sees the potential for putting Alaska in the middle of Pacific maritime traffic in a big way.

He believes Alaskans can prosper from the state serving as a maritime transit and supply point for trade between the U.S. West Coast and Europe via the Soviet Arctic, a route he says will be attractive to shippers, because it would involve shorter distances and less cargo handling. Fuhs says his community, already a port of call for many Russian vessels, takes in about $1 million a year from retail sales to crews shopping for Western goods.

The Northeast or Northwest Passage has been a mariner's dream for many years, but the Soviets are the only ones who have done anything about it. They have the most experience," says Fuhs.

The Soviets are excited about this because it generates foreign currency. This is the way we can get Alaskan products to Europe and make Alaskan resources like coal economically feasible, at least in amounts we haven't been able to before,' he adds.

Fuhs and other port officials from Alaska and the Pacific Northwest met with Soviet counterparts during the Northern Regions Conference, laying the groundwork for a test shipment of American cargo. 'I was very encouraged by our meetings with Soviet officials and business representatives on this matter, and I feel they are very open to our technicians going on their vessels to check out their capabilities," says Fuhs.

Susan Wilson and David Cannon both had dreams dating from their youth about building bridges to the Soviets. When they met a couple of years ago, they formed the Eastern Soviet Trading Co. (Eastco) and began a joint effort to nurture business opportunities in the emerging Russian market. With ambitions beyond Magadan, they set their sights on the larger cities of Khabarovsk, Vladivostok and Sakhalin.

While they don't disparage the opportunities some are seeking in Magadan, they have their sights on the more lucrative prospects they see in the larger eastern Soviet cities. They feel the recentralization of some aspects of the economy is a temporary phenomenon, not necessarily to be feared. Wilson believes that with the right leadership, central planning can work, because it allows resources to be managed expeditiously.

According to Cannon, the latest crisis in the Mideast with its silver lining of unprecedented American and Soviet cooperation sent a very positive message to American business people who had viewed the Soviet potential with great suspicion. 'All of a sudden it created an atmosphere for business people to make commitments. Suddenly it became viable to them,' he explains.

He and partner Wilson have been taking Alaskan and other American business people to the Soviet Far East in large numbers and helping them open doors. They facilitated two nuts-and-bolts trips last fall alone, as well as bringing a Soviet contingent to Alaska.

Building Bonds. Eastco has built a thriving consulting/connecting business from a modest start. We internally capitalized this by diligently going slowly. We did a few little deals,' says Cannon. As Wilson puts it: We spent two years in the trenches.'

The strong demand for connections in the forms of introductions and business/pleasure travel is expected to continue. Says Cannon, This is an inexorable march. You're going to have two steps forward and one step backward for a while. We're having to become more social to meet them halfway, and it's fun.'

Fun, perhaps, but how viable is the Soviet connection for mainstream Alaskan companies? Smirnoff's concern is that many Alaskans lack sufficient capital to go the distance in the Soviet market. Having seen numerous American-Soviet joint ventures bankrupted by bad judgment and poor communication, he says it's still important for firms to keep their eye on the ledger.

When all the costs are compiled, is it economically feasible? I'm trying to be practical, instead of negative," says Smirnoff.

The Foundation for Social Innovation Alaska's Zentner underscores that building trade relationships is a slow process. She describes the Soviet and American economic systems as being like oil and water.

"If you don't understand both, it's impossible to do business," adds Zentner. We've been closed for so long, we know so little about each other. Each social and cultural contact enhances the ability to make good economic relationships.'

Fuhs sees a bright future for the Alaskan-Soviet relationship, but cautions that it will demand making thoughtful, enlightened choices. 'I think we've got an interest in joining with them to ensure our products don't play off each other. The Soviets have the potential to be our toughest competitor or our best partner. There really is a significant choice there,' he explains.

Because 1991 is the 250th anniversary of Vitus Bering's voyage to Alaska, the intended shipment of cargo to test prospects for greater maritime links between Alaska and Europe via the Soviet Arctic is conducive to poetic excitement. But Fuhs agrees that American shippers won't entrust their cargo to the Soviet-Alaskan route unless the savings and benefits are real. And only time, and trial and error in this - as in other areas of any economic relationship- will tell.

"I think the imagery of this (the Bering anniversary) is just beautiful, but this is also a celebration of our future, of working together,' says Fuhs. In Alaska, we're not the back door to the Soviet Union; we're America's front door to the Soviet Union. Everyone's got their pencils and calculators out -this is shaking up the West Coast shipping industry."
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Title Annotation:Alaskan companies work to adapt to open trade with the Soviet Union; includes related article: Building a bridge across the Bering Sea
Author:Richardson, Jeffrey; Timakov, Victor
Publication:Alaska Business Monthly
Date:Dec 1, 1990
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